Strong growth in new orders, production and employment boosted the Houston-area economy during May, a new report by the Houston affiliate of the Institute for Supply Management says.

"And that was on top of solid growth in April," said Ross Harvison, chair of the Houston business survey, which gathers purchasing data from about 40 companies in a wide range of industries including oil and gas exploration and production, oil and gas support services, engineering, manufacturing, wholesale trade and health care. Economists closely watch the results for signs of upcoming economic activity.

The Houston Purchasing Managers Index released Tuesday was 59.2 points in May, same as in April. The index is on a 1 to 100 scale; readings higher than 50 indicate an expanding economy, while readings below 50 point toward coming contraction. The index measures eight key factors: new orders, production, employment, purchases, prices, lead times, purchased inventory and finished goods inventory.

Positive territory

The latest report shows the area's economy has been in positive territory for 57 consecutive months.

However, Harvison is carefully watching a couple of key economic indicators.

There was a modest increase in finished goods inventory levels in May, he said. While Harvison said he's not concerned at this point, it could be a sign of trouble down the road. That's because when finished goods inventories start to build up in warehouses, a reduction in production typically is not far behind. "I'm keeping an eye on it," he said.

Prices are up

There was also a significant jump in prices during May. It was especially pronounced in the products and services needed by the oil and gas exploration and production industry including engineering, construction, mechanical and electrical equipment, piping and welding.

If that trend continues, Harvison said, that could lead to a slowdown in the local economy. That's because when manufacturers are facing a spike in prices, they begin to reassess their purchases, and that, in turn, can lead to a dip in purchasing.

"It's not a problem now," he said, "but we need to keep an eye on it."